Random stuff from a software developer

Betterment substantially increases fees

I recently became familiar with Betterment since my employer switched to them for our 401k provider. I started looking into the services they provided, and became really intrigued by their automated investing and tax-loss harvesting. I’ve usually stuck with Vanguard and their low fees, but with a wrap fee of .15% if you had over $100k invested with them, it was tempting to try Betterment, since in theory, at least, the tax-loss harvesting would more than pay for the additional fees.

Getting all of my investments to them took a fair amount of time and money (though they made the process as easy as possible), and I was excited when I got my emails this morning saying my last 2 big accounts had been received by them.

Less than half an hour later, I got another email titled, innocuously, “New Betterment service plans for 2017”. Reading through the email, they discussed their new options that would allow you to use the services of a CFP, which is odd, given their pitch about automated investing, but not a big deal. Then, tucked down 4 paragraphs is the real reason for the changes:

Each plan will cost a simple, flat rate. Starting June 1, your Digital plan will be 0.25% per year of your average balance.

For accounts with over $100,000 in them, this represents an increase of 67% (from .15% to .25%)! And Betterment tries to make it as low-key as possible that they are increasing fees on us by a huge amount and not offering anything in return. I am really disappointed, both in the increase in fees and in the way they announced it – I had a high opinion of the company before this.

At this point, it looks like WealthFront is a better option. Both do a lot of the same things and offer similar features at a fixed .25% fee, but WealthFront manages the first $10,000 for free and offers a Direct Indexing service that lets you avoid ETF fees, making the combined fee substantially less than Betterment.

Fees should be getting cheaper as companies like this get more assets under management, not going higher by almost 70%, and companies should be more forthright in the way they raise fees.